Author: Tuhin Jana, Mutual Fund Distributor.
Freedom of all types is extremely cherished; that is innate human nature. If we think over it, this desire for freedom is so ingrained that trying to achieve financial freedom is second nature. Achieving financial freedom means not having to worry about the money required to fulfil basic human needs such as food, clothing, shelter and living comfortably in general.
Also, financial freedom allows you to pursue your dreams and passion, one that you had kept aside when you busy working towards financial freedom. When at this stage in life, it is best to set up a funnel which will help generate income to meet your day-to-day needs in an orderly manner without dipping into your investments meant for other life goals. One of the ways of doing this is by opting for a feature like the Freedom SIP.
What is Freedom SIP?
Freedom SIP is a feature from ICICI Prudential Mutual Fund which enables investors to meet their financial objectives through the use of a combination of Systematic Withdrawal Plan (SWP) after the completion of the tenure for Systematic Investment Plan (SIP), making way for receiving a regular income flow from the investments made over the years.
Freedom SIP aims to provide investors with a complete solution – investment, wealth creation and wealth distribution. It emphasises on the importance of routine investments and withdrawals as opposed to one-time lump sum activities, allowing for goal-aligned, structured, and targeted investing.
How Does Freedom SIP Work?
Freedom SIP works in three separate phases. It begins with the
Investment Phase: During this phase, investors initiate SIP investments for a tenure ranging between 8 years to 30 years. Investors can choose the scheme into which the SIP has to be made and the SIP amount. Given that these investments are long term in nature, investors can consider opting for an equity oriented scheme.
Switch Period: After the SIP duration is over, the corpus created is transferred to the source scheme to a target scheme with an intent to protect the money from market volatility. The SIP scheme is known as the source scheme and the scheme to which the money is being transferred to is known as the target scheme. The ideal choice for a target scheme is hybrid or debt fund, where the portfolio volatility is minimal in nature.
Withdrawal Phase: The withdrawal phase is when investors begin to receive fixed-frequency SWP payouts. It is from the target scheme the withdrawal is initiated. While periodic withdrawals occur, the remaining amount remains invested, thereby continuing to grow. Such a stream of SWP payment helps create a supplementary income stream during phases like retirement, or helping children during their overseas education.
Things to Mindful of before Initiating Freedom SIP
• Set Clear Goals: Know the purpose for which Freedom SIP is being initiated. Given that this is a long term commitment; a clear goal will help you stay the course over the years.
• SIP Amount & Tenure: When deciding on the SIP amount, take into consideration the future cost of your financial goal and invest accordingly. Similar is the case with SIP tenure. Choose a timeframe that fits your financial goals.
• Selecting Source & Target Scheme: Both the scheme chosen should be in-line with one’s risk tolerance. The source scheme can be equity oriented but be sure to keep a debt or hybrid scheme as the target fund.
• Withdrawal Quantum: At the time of signing up, the withdrawal quantum has to be measured. Think through this carefully. The SIP amount chosen and the timeframe of investment has a bearing on the SWP amount, so consult a financial advisor if you are unsure about how to reach the amounts necessary.
It is crucial to remember that obtaining financial freedom does not always mean being extremely wealthy. It involves handling your money in a manner where you can live life on your terms and have more control over your decisions.
To conclude, for people looking for financial independence, Freedom SIP offers a complete package. It offers a thorough strategy for building and managing money. It offers a route to financial security and independence due to its goal-oriented planning, emphasis on long-term investing, effective tax optimisation, and systematic returns.